May 22 (Bloomberg) -- Olympus Corp. said sales of its
compact cameras may fall by half next fiscal year, extending a
decline as consumers increasingly use smartphones such as Apple
Inc.’s iPhone to take pictures.

Volume sales will drop to about 1.35 million units as early
as the year starting April, Chief Executive Officer Hiroyuki
Sasa said in an interview in Tokyo May 20. The company forecasts
it will sell 2.7 million compact cameras this fiscal year,
falling 47 percent from the prior 12-month period.

Olympus joins Canon Inc., the world’s largest camera maker,
in projecting shrinking demand for compact models. Increased
sales of higher-end mirrorless digital cameras will make up for
the earnings shortfall from compact ones, helping the camera
division at Olympus break even this fiscal year, Sasa said.

“The bottom line is that we can’t make profit from compact
cameras,” Sasa, 57, said in the interview at the company’s
headquarters in Tokyo. “We’ll focus on selling mirrorless
models and lenses.”

The camera division will break even in the 12 months
through March, ending three years of losses by saving 23 billion
yen ($224 million) from steps including job cuts and factory
reorganization, Olympus predicted this month.

The unit, responsible for 14 percent of revenue, had an
operating loss of 23 billion yen in the year ended March,
Olympus said May 15. The medical business that includes
endoscopes, devices with tiny cameras used to look inside the
human body, contributed more than half of sales and recorded a
28 percent gain in operating income to 87 billion yen.

Stock Recovers

Olympus, also the world’s biggest maker of endoscopes, rose
0.2 percent to 3,185 yen in Tokyo trading yesterday. The gain
extended the stock’s gain this year to 91 percent, compared with
a 48 percent advance for Japan’s Topix Index.

The shares are recovering for a second year after plunging
59 percent in 2011, following the company’s admission of an
accounting fraud lasting more than a decade and the ouster of
former CEO Michael Woodford.

Olympus canceled dividends in 2011 after restating five
years of earnings. It also took a $1.3 billion cut in net assets
after saying it inflated fees for takeovers and overpaid for
three companies to conceal past investment losses.

Steering the camera business back to profit is a condition
for restarting dividend payouts, Sasa said.

Annual sales of mirrorless digital cameras at Olympus will
probably rise 67 percent to 1 million units in a few years from
600,000 in the 12 months ended March, Sasa said, without giving
a more specific timeframe.

Growing Market

“The market is growing,” Sasa said. “Customers in
countries such as Japan, Germany and Singapore are recognizing
the value added to our products.”

Net income will rise almost fourfold to 30 billion yen this
fiscal year, led by higher sales of endoscopes, Olympus said May
15. It posted net income of 8 billion yen in the 12 months ended
March, compared with a loss of 49 billion yen a year earlier.

Canon in April forecast full-year net income that missed
analyst estimates because of shrinking demand for compact
models. The company also cut its 2013 sales target for compact
cameras by 15 percent to 14.5 million units.